As the housing market improves so does the opportunity to improve your home and trade it up for a gain. HMRC are not tolerant of people using this relief unfairly and the rules while simple must be followed to benefit from this relief. In summary no capital gains tax is payable when the house you live in is sold for a profit, however if you make a habit of moving frequently HMRC may conclude that you are carrying out a trade and this relief will be lost. In order to benefit:
- While you can elect for a property to be your PPR you must actually live there
- The best way to demonstrate this is for all of your mail to go to that address (including HMRC!), you can then show this to them should they ask
There are a couple of scenarios which may catch you out:
- Renovation programmes on the television often show stressed out owners trying to build their dream home and it is vital that they physically move from their temporary accommodation to the finished project before selling it. Unless they can demonstrate this they could be charged capital gain tax on the appreciation of the property despite the additional costs they have incurred. Where this has been funded by loans they may be relying on the full value to repay these including interest.
- Young couples getting together may buy or trade up so they have two properties between them, it is vital that one of them lives in each property for at least a short period of time. Married couples can only have one PPR at any one time but unmarried couples could elect to have separate PPRs.
One other recent change to be aware of is that there used to be an assumption that the last 3 years of ownership were covered by the PPR if it had been used as a PPR at any time. This period is being reduced to 18 months from 2014/15. You might also want to check our earlier post on capital gains tax and PPR and changes to capital gains tax for higher rate taxpayers.
As a rule of thumb we would advise clients to live in a property for at least 3 months to demonstrate a PPR, but is a complex area and may not apply to your situation so you should seek professional advice before taking any steps based on the contents. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”